Russia borrowers strike bullish note over sanctions

While sanctions are hitting the Russian markets and pushing up interest rates, senior executives at Sberbank and potash producer Uralkali tell Euromoney the country’s banks and corporates are looking internally and to the east for new sources of financing. But with Russia sliding towards recession, liquidity is vanishing.

The
sanctions climate in Russia is still holding a firm grip on
the country, and speculation is rife about what the next move
could be, from tighter controls to Swift blocking the use of
its messaging services.

The most recent round of EU sanctions were imposed to target
the oil industry, but corporates outside of this are claiming
it is business as usual.

The rupee has been a notable beneficiary of this
euphoria

Viktor Belyakov

With sanctions restricted to individuals considered within
the close circle of Putin, it is a select number of businesses
and
banks that are feeling the effects of US and EU rulings.
While these are among some of the best-known names, not all
Russian companies are falling on the sanctioned list.

Before leaving the company in September, Viktor Belyakov,
chief financial officer of potash producer Uralkali, told
Euromoney it would be mistaken to think that the imposition of
sanctions means Russia is closed for business.

"There are no government stakes in the company, so the
probability of the sanctions introduced against Uralkali we
consider as low," he says.

This does not mean the shift in the climate has gone
unnoticed. Cautious of the frequently expensive consequences of
breaching sanctions, US and European banks have been
withdrawing, which has been having a further impact.

Says Belyakov: "The US banks have been cutting business.
Some conservative European banks have been doing it too,
although they do not need to. All of this is causing the
increase in interest rates."

As the US banks and the Europeans leave a gap in the market,
there is space to be filled. Russia has been bullish on the
ability to find the necessary financing internally, but whether
or not the Russian banks are capable of doing this alone
remains to be seen.

"There are a lot of discussions in the Russian press about
whether the Russian banks can provide the funding needed on
their own, says Belyakov, adding: "The banks are against the
sanctions being introduced right now. Some Russian banks are
able to provide funding on their own, as we recently signed a
10-year US dollar loan with Promsvyazbank. So there is some
dollar liquidity in Russia."

Commenting at the time of the Promsvyazbank loan, Belyakov
says the new facility demonstrated the ability of Russian
institutions to provide loans for domestic borrowers. This
facility was obtained to refinance existing liabilities and
investment programme.

He adds now that the company does not need to raise any
additional funding for some months. This is not, however, the
case for all Russian corporates, with Moody's Investors Service
estimating there is $112 billion to be refinanced.

Feeling the pinch

Sberbank for one has been feeling the pinch, and president
German Gref has spoken of how the bank is facing a colossal
task to move towards obtaining financing from domestic
banks.

However, the bank is also open to other options. Sberbank
took a prominent position at Sibos in Boston in September,
seemingly undeterred by the sanctions imposed by the US and the
EU that have left many banks in both regions, if not unable, at
least reluctant to instigate new business.

In Europe, the bank is blocked from accessing the medium- to
long-term markets. Despite some suggestion Swift might cut off
the country from its messaging network, it has flatly denied it
has any intention of blocking access to its services.

Recent reports suggest Sberbank is looking to work with VTB
on establishing an alternative network in case of a U-turn from
Swift, but at substantial cost to the institutions.

This market space has left open the possibility of
closer working with Asia. The steady stream of Asian
bankers attending meetings with the bank at the conference were
testament to the level of interest, although it remains to be
seen how much business is done.

With the US banks they would ask what the
minimum limits would be, while the Chinese banks ask
if we would be OK with $1 billion. The Chinese are
not afraid of big numbers

Evgeny Kaplin

Evgeny Kaplin, senior banker, managing director trade
finance and correspondence relations division, Sberbank CIB,
has seen increasing interest from the Chinese banks, which are
buoyed by their considerable balance sheets.

"The Asian banks are coming in, and the Chinese banks are on
top of the world, with the biggest balance sheets," he says.
"With the US banks they would ask what the minimum limits would
be, while the Chinese banks ask if we would be OK with $1
billion. The Chinese are not afraid of big numbers."

Uralkali's Belyakov is also seeing this budding shift in
market financing, saying: "There is additional interest from
Asia. There is a good relationship with the Asian banks in
Russia, and their levels of liquidity are very high. There is
the chance of escalating business with the Asian banks if there
is a decline from the US and Europe."

Further reading on Euromoney

Add Your Comment

All fields are compulsory

All comments are subject to editorial review as we are subject to the same regulations adhered to in publishing our own content. For this reason, your comment may not be live immediately, or may not be published.

Magazine

The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies Policy before using this site.